Enter the Dragon
rallied again in 2013 as economies around the world have continued to stabilise after the economic meltdown. The segment slowed considerably between 2010 and 2012 as a direct result, but luxury wristwatches have since recovered. The product has enjoyed particular success thanks to its relative stability. Watches are popular as assets and investment pieces, as evidenced by highly successful recent auction yields. Experts are already predicting strong upswings of 5-10 per cent growth in the watch market in 2014.
The industry has managed to achieve success through a prudent focus on emerging markets, notably those in Asia. The bullish, confident growth of China and other tiger nations boosted the watch industry in recent years, spurring a huge increase in demand from Asian countries (and a subsequent influx of luxury watch boutiques across the continent).
The horology market is still dominated by just a handful of player countries: Switzerland, Germany, France and the UK in Western Europe along with Hong Kong, Singapore, Japan and the US. Hong Kong forms a key nodal point for the exchange of watches and related products, acting as a hub for the watch market around the world.
Luxury products have
China is the world’s biggest watch producer in terms of volume but largely at the lower end of the price range. At the premium end, it’s Switzerland that continues to reign. Despite only producing 2.5 per cent of global production, in terms of value it wears the crown. It’s the country’s third largest export, selling 95 per cent of products outside its borders.
The sector has been on tenterhooks in the last couple of years. “Until recently, the macroeconomic indicators were red to amber,” said Jean-Christophe Babin, the relatively new CEO of Bulgari (LVMH). “They've now switched to amber-green. We're also seeing the end of the effects of destocking at retailers. I expect sales to take off quite quickly as of the beginning of next year." He forecasts, "We can reasonably anticipate a 5 to 10 per cent increase in Swiss exports [in 2014]."
Demand from China – a country that has become the bread and butter for many watch firms – has begun to wane with the introduction of anti-corruption measures and a cooling of the country’s red-hot economic growth. This is seen as a normalisation of demand rather than contraction and appetite from China and the Arab States remain high. China’s growing middle class and new liberal trade agreements inked by world leaders suggest that it will remain a key export destination for many brands, a revival that has led other experts to posit 6-8 per cent growth rates for the main luxury watch brands. The bilateral trade agreement between China and Switzerland – where import duties on luxury items are as much as 31 per cent - goes live in mid-2014 and will have particular, positive influence on export sales in coming years.
Other emerging countries are now forecast as new growth prospects thanks to rising incomes and growing prosperity. The traditional BRIC economies continue to show promise but high import tariffs in Brazil and India constrict the potential. By contrast, countries like Vietnam, Ukraine, Malaysia, Indonesia, South Korea and Mexico are identified as markets with great potential for luxury market growth thanks to their strong economies and rising personal incomes.
Although the Asian watch market has cooled in 2013, many watchmakers are continuing to court Asian custom with dedicated products to cater for a large proportion of buyers. According to the Federation of the Swiss Watch Industry, more than half of its members’ products were sold to the Asian market in 2011. Timepieces with